General Disclosure

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2 General Disclosure This Desirability and Convenience Study (the Study ) has been prepared pursuant to the requirements of the Puerto Rico Public-Private Partnerships Act (the Act ) PR ST T This Study seeks to determine whether the establishment of the proposed Public-Private Partnership ( P3 or PPP ) for the Caguas-San Juan Commuter Rail Project ( the Project ) described herein is advisable. This Study was formulated according to the Desirability and Convenience Study General Guidelines and will be submitted before the Public-Private Partnerships Authority ( the Authority ) and its Board of Directors for evaluation and compliance with the Act. This Study was commissioned by the Department of Transportation and Public Works ( DTPW ), the Puerto Rico Highway and Transportation Authority ( PRHTA ) and the Autonomous Municipality of Caguas ( AMC ), with the assistance of its advisor Estudios Técnicos, Inc. ( the Advisor ) as part of a financial and technical advisory engagement between AMC and the Advisor. The Authority appointed KPMG LLP ( KPMG ) as its commercial and financial advisor for the Project. In this role, KPMG undertook a review of the Study and the inputs, assumptions and estimates contained therein, and where applicable, provided recommendations to AMC and its Advisor to conduct further analysis of the Project. This Study contains the results of this additional analysis. This Study is based on estimates, assumptions and market information obtained from sources believed to be reliable. Actual results may vary from those anticipated in this Study. Changes in the transit industry, state and federal laws, market conditions, and shifts in overall economic conditions or other factors may occur, that can alter the assumptions and conclusions presented in the Study. It is recommended that further analysis and due diligence be conducted in subsequent phases of the Project. The Authority will continue to evaluate and analyze the desirability and convenience of the Project as a P3 as new information becomes available. In particular, the Authority is in the process of procuring a technical advisor who will update cost estimates related to construction and operations. The Authority will advise the P3 Committee of any material changes. Neither AMC nor the Advisor makes any representation or warranty whatsoever, including representations or warranties as to the accuracy or completeness of the information herein contained, including estimates, forecasts, or extrapolations. In addition, the Study includes certain projections and forward-looking statements provided by AMC with respect to the anticipated future performance. Such projections and forward-looking statements reflect various assumptions and are subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of AMC. Accordingly, there can be no assurance that such projections and forward-looking statements will materialize. The actual results may vary from the anticipated results and such variations may be material. The Authority, AMC and the Advisor expressly disclaim any liability for any representations or warranties, expressed or implied, contained herein or for any omissions from this Study or any related matters.

3 The Act and the Authority s regulations, as well as all applicable Puerto Rico and federal laws and regulations, will govern the dissemination of this Study.

4 TABLE OF CONTENTS EXECUTIVE SUMMARY INTRODUCTION PROJECT BACKGROUND AND CONTEXT DELIVERY OPTIONS ANALYSIS BENEFIT-COST ANALYSIS AFFORDABILITY ANALYSIS ECONOMIC IMPACT ANALYSIS FINANCIAL FEASIBILITY CONCLUSION REFERENCES APPENDIX A: GENERAL PARAMETERS OF BENEFIT-COST ANALYSIS APPENDIX B: SUMMARY OF TRAVEL TIME BENEFITS APPENDIX C: SUMMARY OF VEHICLE OPERATING COST BENEFITS APPENDIX D: SUMMARY OF ACCIDENT REDUCTION BENEFITS APPENDIX E: SUMMARY OF EMMISSION REDUCTION BENEFITS... 51

5 EXECUTIVE SUMMARY The Public-Private Partnerships Authority ( Authority ), in collaboration with the Department of Public Works and Transportation ( DTPW ), Puerto Rico Highways and Transportation Authority ( PRHTA ) and the Autonomous Municipality of Caguas ( AMC ), is contemplating the procurement and delivery of the Caguas-San Juan Commuter Train Project (the Project ) through a public-private partnership ( P3 or PPP ). The Authority is the sole entity responsible for the implementation of PPPs in Puerto Rico. PRHTA is the public corporation responsible for executing innovative infrastructure and transportation plans, programs and projects that effectively facilitate the movement of people and goods while protecting the natural resources of Puerto Rico. AMC is responsible for addressing the needs of its inhabitants and ensuring their well-being. The Authority is considering establishing a PPP to Design / Build / Finance / Operate / Maintain ( DBFOM ) the Caguas-San Juan Commuter Train. The PPP would likely involve a long-term (30 to 35- year) DBFOM concession agreement with a private entity. It is not anticipated that risks related to revenue and ridership will be transferred to a private entity, with compensation to the private entity based on Availability Payments. The Project is a planned transit alignment that will connect the Central Eastern Region of Puerto Rico with the public transit system of the San Juan Metropolitan Area (Metropolitan Bus Authority and Tren Urbano) through a separated and exclusive right-of-way (ROW) along highways PR-52 (Luis A. Ferré highway) and PR The train s alignment will run primarily from Caguas to San Juan through PR-52. In Caguas, two (2) origin stations will be developed, one (1) each at Las Catalinas and Plaza Centro Shopping Malls. The destination point in San Juan will be either the Tren Urbano s Cupey or Centro Médico Station. The Tren Urbano is a fully-automated rapid transit line that serves the San Juan, Bayamón and Guaynabo municipalities. It is anticipated that the train will operate seven (7) days a week, eighteen (18) hours a day, from 5:00 am to 11:00 pm. Alternate operating hours will be scheduled as required and subject to special events. AMC is located south of San Juan and with its access to PR-52, PR-1 and PR-30 is considered a gateway between the Central Eastern Region ( CER ) and the San Juan Metropolitan Area ( SJMA ). However, the vital routes which help many people who live in the CER get to work in the SJMA suffer significant delays as a result of severe traffic congestion conditions, not just during peak rush-hour periods, but for most of the day. The Commonwealth and AMC are considering the development of a mass transit system, as discussed in this document, to alleviate congestion by providing an alternative mode of transportation, as well as to reduce vehicle emissions, stimulate economic development (job creation) and improve safety. A P3 which uses a DBFOM-style delivery model is one which significantly helps mitigate risks related to construction cost and time overruns, interface risk, operational performance risks, operations and 1 ROW is also available along PR-18 and PR-1 as required for alternative San Juan stations. Page 1

6 maintenance cost risk, etc. The private sector partner will use performance based construction and operational requirements that will facilitate a whole-life approach to costing the Project and may help to reduce Project costs as compared to traditional methods of delivery. The Authority, DTPW, PRHTA and AMC have considered various ways to deliver this Project and recommend that it be delivered as a DBFOM P3 with Availability Payments to be procured pursuant to Act No. 29 of the Legislature of Puerto Rico of June 8, 2009 (the Act ). This document is being submitted before the Authority s Board of Directors as the Study of Desirability and Convenience for the Project in compliance with the P3 Act. Project Background and Context Since 2001, AMC has been planning the development of a commuter rail system as a means of public transportation from Caguas and the CER to the SJMA. The main objective of the Project is to improve the region s livability and to help reduce environmental pollution through the reduction of traffic congestion and private automobile dependency. The mass transit system strategy proposes a group of integrated transportation modes that combine a Caguas-San Juan corridor with regional and local transportation systems, which would be the primary feeders of projected ridership and revenues that would support the Project. Qualitative Analysis of Delivery Options A qualitative assessment of a broad range of delivery options was undertaken. As outlined in Chapter 3 of this Study, each was assessed against the goals and objectives of the Authority and AMC. The considered delivery options include: Conventional Design / Bid / Build Design / Build Design / Build / Operate Design / Build / Operate / Maintain Design / Build / Finance Design / Build / Finance / Operate Design / Build / Finance / Operate / Maintain After assessing the various options the Design / Build / Finance / Operate / Maintenance ( DBFOM ) option has been identified as the most desirable method for the delivery of the Project. AMC has sought to improve the certainty of final construction Project costs regarding certain contracts by transferring most risks to the contractor. However, additional analysis and due diligence will be required to refine the risk allocation in advance of issuing a Request for Proposals. Page 2

7 Benefit-Cost Analysis The benefit cost analysis compares the benefits and costs of two scenarios: NO BUILD scenario: not building the Project, and keeping the highway system as it is; and BUILD scenario: delivering the Project. This comparative analysis is carried out by computing, for each scenario, the benefit-cost ( B/C ) ratio, which compares the increase in benefits to the Commonwealth, against the increase in costs for each scenario. This scenario provides a preliminary indication of whether the Project is economically feasible. A B/C ratio greater than one (1) indicates that a proposed project is economically feasible. Preliminary analysis indicates that the Project has a B/C ratio of between 1.65 and 3.0, based on a range of upside and downside cost and revenue scenarios for the Build scenario. On this basis, the Project is economically feasible and provides significant benefits to the Commonwealth. Project Funding The current financial situation of DTPW, including PRHTA, hinders continued investment in the improvement, expansion and maintenance of Puerto Rico s infrastructure. Its mandate includes responsibility for the construction and upkeep of toll roads, highways and expressways, as well as the existing Tren Urbano system. It has the authority to collect revenues from various sources, against which bonds may be issued. However, its present financial position and recent financial performance indicates that it may only have the capacity to provide limited funds to support the Project. An operating subsidy contribution of $20 million per year has been proposed for the first ten (10) years of the Project s operating term, however, further financial analysis and technical due diligence may indicate that a higher or lower subsidy amount may be required. AMC has indicated a willingness to invest in its transit infrastructure and contribute subsidies or funds to the Project. However, AMC s current financial position and financial performance indicate that, acting alone, it would be likely unable to make sufficient financial contributions to support the Project. Although AMC may contribute funds from alternative sources, such as toll revenues, 2 the quantum of these funds is presently unclear. Based on current analysis, the Project will likely require multiple sources of funding including AMC, the Commonwealth and possibly the federal government. User Cost Comparison The sprawl of the SJMA into the CER, automobile dependence, and high electric, fuel and housing costs have had the effect of burdening and limiting the population s access to transport and housing. In addition, the lack of public transportation alternatives for CER residents limits access to education, health, 2 Note that PRHTA collects toll revenues, and that AMC does not have the authority to collect tolls directly. An arrangement would need to be made between AMC and PRHTA for the collection of toll revenues, and the application of these toll revenues to the Project. Page 3

8 recreational and work activities offered in the most important centers of economic activity, including SJMA. The Project would make transportation more affordable to residents of the CER, as presently most residents depend on a vehicle to travel between Caguas and San Juan. According to Estudios Técnicos database, the total cost of a 20-km (12 mile) trip between Caguas and San Juan is $9.76 each way, taking into account the cost of ownership and variable costs of each trip. The perceived cost, however, is $5.60, which only accounts for some variable costs components, such as gas and tolls. In order to achieve reasonable ridership, the Project fare is proposed to be between $2.50 and $3.00 per trip. This fare would significantly reduce the true cost of a typical commute between Caguas and San Juan. With a $2.50 fare, the cost of a Caguas-San Juan trip is reduced by $7.26 (76%) and by $3.10 (60%) in contrast to perceived costs. Economic Impacts The Project would generate economic impacts derived from the initial investment in construction, and subsequently from recurring operating costs. These activities will also generate commercial and economic opportunities for local firms. For the purpose of this analysis, economic impacts have been analyzed on the assumptions that: The initial investment in the Project would be in the range of $400 to $500 million (including $25 million in land acquisition), based on work completed by AMC to date; and The annual operating expenses of the Project are $12.8 million per year. Construction activities would generate approximately 3,600 full-time jobs over a period of three years, most of which would be direct jobs and translate into approximately $130 million in personal income. The public sector could earn $28 million in revenues, of which $10 million may revert to the municipal government and $18 million may revert to the Commonwealth. Financial Feasibility The assumptions included in this Study for the financial feasibility are based on analysis prepared by Estudios Técnicos, Inc. This assessment is subject to change in subsequent stages of the Project, and the Authority is presently in the process of selecting technical advisors who may provide new cost data related to construction, operations, maintenance, life-cycle replacement and other costs. Additionally, underlying business and financial assumptions regarding fares, revenue, ridership and financial structure may also change as the understanding of demand for the Project evolves. The Authority will work closely with the P3 Committee to analyze changes and the impact to financial feasibility. Over the term of the operating period, the subsidy to be provided by AMC and/or the Commonwealth (in addition to the $20 million per year for the first 10 years) ranges from a low of $11 million to a high $39 million in the base case (per the assumptions above). The average subsidy is $23 million. Across all sensitivity scenarios the lowest subsidy requirement is approximately $11 million and the largest is $57 million (downside revenue and high capital costs). The average subsidy is $29 million. Page 4

9 As stated, these estimates are subject to change; however, they provide a reasonable planning benchmark. Conclusion The key findings of the Study fall into three groups: The need for investment in commuter rail transportation in the PR-52 corridor; The delivery model to facilitate the investment; and Preliminary benefit-cost analysis and financial feasibility. Need for Investment: The vital routes which connect the north and south shores of Puerto Rico and also help many people who live in the CER get to work in the SJMA, suffer significant delays as a result of severe traffic congestion conditions, not just during peak rush-hour periods, but for most of the day. There are more than 160,000 daily trips being made in the PR-52 transportation corridor, which is beyond its design capacity and the resulting congestion making journey time between 45 and 55 minutes for a 15 mile journey. This Project will help not only relieve existing and future congestion, but also help to reduce vehicle emissions, stimulate economic development (job creation) and improve safety. Choice of delivery model: The conclusion of the qualitative delivery model analysis is that a Design / Build / Finance / Operate / Maintain (DBFOM) delivery model is the most suitable option for the Project. While the use of the DBFOM model would facilitate the transfer of several of the key risk groups in the Project to improve outturn cost and schedule certainty, it is not anticipated that risks related to ridership and revenue from the Project will be able to be transferred. There is strong market precedence for this model which will help the Commonwealth transfer significant risk to the private sector and significantly reduce interface risk between phases as one entity will be held accountable for the development and delivery of the Project. Preliminary benefit-cost analysis and financial feasibility: The benefit-cost analysis described in Chapter 4 shows that the anticipated quantifiable benefits from the Project exceed their anticipated costs regardless of the high/low cost scenarios presented. Congestion relief, travel time savings, job creation and reduced vehicle emissions are key benefits assessed. It is important to note this analysis does not include all of the potential benefits that the Project investments will contribute to the regional economy, for example through improved land values. So, indeed, the benefits are even greater. The benefit-cost ratios were tested for a range of capital expenditure and ridership scenarios. All scenarios demonstrated strong benefit-cost ratios that exceeded the threshold ratio of one. A preliminary financial feasibility analysis was performed based on a range of capital cost, operating and maintenance costs and ridership scenarios to aid decision making and planning for the Project. Additionally, a downside revenue scenario was also developed to understand the impact of Project revenue if ridership is significantly below expectations. Based on the output of all sensitivity scenarios, the lowest net subsidy requirement in any year of operations ranges from approximately $11 million to $57 million. While these estimates are subject to change, they provide a reasonable planning benchmark for establishing levels of funding. Page 5

10 Based on the findings noted above, the Authority considers the Project ready to move to the procurement phase. Page 6

11 1 INTRODUCTION 1.1 Introduction In recent years, Puerto Rico has experienced significant urban sprawl and limited densification as a result of extensive highway construction, poor controls over land use development and, in some areas, a buoyant real estate market. This process of urban sprawl has been accompanied by a continued deterioration of public transit services and increased availability of private automobiles, resulting in significant highway congestion, traffic delays and vehicle emissions. The 2030 Long Range Transportation Plan recognizes these issues and the importance of effective mass transit in the development of livable communities, noting that: the increasingly popular concept of livable communities requires that pedestrian needs be addressed and protected, and transit opportunities developed to ensure that people have the opportunity of going about their daily lives, at local and regional levels, without being forced to use the automobile. 3 The Government of Puerto Rico, its public corporations and municipalities are responsible for efficiently providing essential services at the lowest possible cost for the welfare of Puerto Rico s citizens. These services include public health and safety, education and transportation services. Due to the financial constraints of the Commonwealth and its municipalities, innovative financing mechanisms have often been adopted to help deliver infrastructure projects to its people. On June 8, 2009, the Legislature of Puerto Rico approved Act No. 29 ( the Act ) to promote and allow the establishment of Public-Private Partnerships in Puerto Rico for purposes therein set forth. The P3 Authority ( the Authority ) was created as a public corporation with the purpose of implementing the Government s public policy regarding P3s, pursuant to the Act. The Act requires the Authority to conduct or commission a Study of Desirability and Convenience ( Study ) for each potential P3 Project selected by the Authority. Each Study seeks to ensure that a particular project meets the public policy goals and objectives established by the Act, as well as to determine whether the P3 delivery of the project is advisable. The scope of each Study is determined by the Authority based on the particular facts and circumstances of each project under consideration. Each Study will include, as deemed applicable by the Authority, the matters stipulated in Article 7(b) of the Act. The Authority may expand or reduce the scope of the Study to include other matters not specifically listed in Article 7(b) of the Act, or alternatively, it may exclude matters that are deemed not relevant to a particular project, as appropriate. The Act allows for the establishment or formulation of P3 contracts for a series of Priority Projects (as defined in the Act), including but not limited to the design, implementation, operation, and/or maintenance of transportation systems. 3 DTPW and PRHTA, San Juan Urbanized Area: 2030 Long Range Transportation Plan, p1, January 2011, San Juan, Puerto Rico. Page 7

12 The proposed project is known as: The Caguas-San Juan Commuter Rail Project (the Project ). This document will be submitted for evaluation before the Authority s Board of Directors as the Study of Desirability and Convenience for the Project, in compliance with the Act. According to 2010 U.S. Census data, the San Juan Metropolitan Area ( SJMA ) includes nearly one third of Puerto Rico s total population. In general, the decennial data collected by the Census Bureau defines the SJMA as an entity in constant growth. The need to build a mass transit system arises as a result of the severe traffic congestion conditions, which exist not just during commuting hours, but on a regular basis on the main roads that connect the Central Eastern Region ( CER ) with the SJMA, namely state highways PR-52 (Luis A. Ferré Highway), PR-30 and PR-1. The Authority seeks to assess the desirability and convenience of delivering the Project as a P3, specifically utilizing a Design / Build / Finance / Operate / Maintain-style delivery method supported by Availability Payments. A modern and fast commuter rail system, which effectively connects Caguas, the CER and the SJMA, has been identified as the modal option that best satisfies the objectives of DTPW/PRHTA s transportation policy as well as the service needs of the CER. 1.2 Project Description The Project involves the construction of a mass transit rail system that would service the CER and SJMA, by connecting the municipalities of Caguas and San Juan by integrating with the existing Public Transit System of SJMA (Metropolitan Bus Authority and Tren Urbano). The Project corridor has a length of 24.3 km (15.1 miles) and would be predominantly located in the existing median of state highways PR-52 (Luis A. Ferré Highway) and PR-30, negating the need to acquire significant additional right-of-way (ROW). 4 The Project contemplates the construction of three stations: two in Caguas and one in San Juan. The two (2) origin stations in Caguas are planned with one (1) in the Las Catalinas Shopping Mall Area and one (1) in the Plaza Centro Commercial Center Area. The station terminus in San Juan would be located either at the existing Cupey station or the Centro Médico Station that services the Tren Urbano system. It is anticipated that the Project will operate seven (7) days a week, for 18 hours per day, from 5:00 am to 11:00 pm (commencing one hour before and closing one hour after Tren Urbano). Alternate operating hours would be scheduled as required to accommodate special events or other public policy objectives. The Project is characterized by six (6) main capital components, namely: Rail construction and placement; Rollingstock, including locomotives and carriages; Three (3) stations; One (1) operations and maintenance facility, to be located in Caguas; Two (2) secured park-and-ride facilities, intended to provide a combined total of 861 parking spaces; and 4 ROW is also available along PR-18 and PR-1 as required for alternative San Juan stations. Page 8

13 Infrastructure improvements to: - State highways PR-52, PR-30 and PR-1; - Intersections PR-52/PR-30 and PR-52/PR-1; and - Caguas Northern Tollbooth. 1.3 Project Objectives The Project s strategic objectives are to: Establish a mass transit system that is efficient, safe and reliable; Reduce automobile dependency, which will help alleviate congestion in the CER and reduce vehicle emissions; Provide an improved and expanded transit service with increased accessibility and mobility that is superior to existing transit alternatives and improves the region s livability; and Stimulate economic development, through the construction and operation of the Project as well as reducing transportation costs, which will help improve the quality of life for families in the CER. 1.4 Project Benefits The expected benefits resulting from implementation of the Project include: An environmentally friendly transportation alternative for residents and visitors; A user-friendly experience for passengers, pedestrians, residents, tourists and visitors; Reduction in greenhouse gas emissions produced by automobiles; Reduction in traffic congestion; Increased productivity generated from time savings; Increased economic activity in adjacent areas; Increased business for local firms involved in the Project s design, construction, operations and maintenance; and Creation of jobs and socioeconomic benefits for Puerto Rico. 1.5 Project Status DTPW/PRHTA and AMC previously developed a complete set of plans and specifications, including an Environmental Assessment (valid through September 2018), for the construction of a Bus Rapid Transit ( BRT ) and diesel train systems. These plans and specifications will need to be converted to address a commuter rail transit project. These documents were prepared by Behar-Ybarra & Associates and they were completed in March All Commonwealth government endorsements were obtained but are presently overdue. These documents will be used as a reference for future amendments, and final documents and approvals will likely need to be received prior to commencement of the procurement process for the Project. Presently, no federal environmental approvals are in place. The Commonwealth has decided to commence the NEPA approval process in order to qualify for various federal funding and financing programs. The Page 9

14 Authority will work closely with the P3 Committee selected for this Project to analyze the merits of securing federal funding and developing an appropriate strategy. Page 10

15 2 PROJECT BACKGROUND AND CONTEXT 2.1 Transport Organized for Orderly and Sustainable Development In 2001, AMC commenced initial investigations into the development of a commuter rail system that would connect the municipalities of Caguas and San Juan. On March 23, 2007, and following several preliminary studies and designs, a collaborative agreement was signed by DTPW, the Government Development Bank for Puerto Rico ( GDB ), AMC and the Central Eastern Technological Initiative ( INTECO, for its Spanish acronym) 5 for the development of a mass transit system in the CER. The primary objective of the collaborative agreement is to improve the CER s livability through the reduction of environmental pollution, traffic congestion and automobile dependency. The proposed mass transit system, named Transport Organized for Orderly and Sustainable Development ( TODOS, for its Spanish acronym), is a group of integrated transportation modes that combines a Caguas-San Juan rail corridor with local and regional transportation systems. The CER will have two main transportation transfer centers which will serve as feeders to the Project: Caguas and Humacao. Caguas will be the center of eight inter-municipal routes within the CER, while Humacao will be the center of four inter-municipal routes within its region. The scheme will provide inter-municipal transportation among all CER municipalities. The system will help support present-day ridership while providing enough growth capacity for more than a 75% increase. Consistent with Federal Regulations, the 2030 Long Range Transportation Plan seeks to determine the projected transit needs for current and future generations, and provide a strategic approach to the implementation of projects to satisfy these needs. TODOS s purpose is to improve the livability of participating municipalities, help relieve the current motor vehicle user from the chronic level of traffic congestion that presently exists along both state and municipal roads, and lessen environmental pollution through the reduction of traffic congestion. It will also manage to attract those residents who are transportation disadvantaged and who do not presently have adequate transportation alternatives. 2.2 Demographic Overview The CER is one of Puerto Rico s major economic hubs and is composed of eleven (11) municipalities: Aguas Buenas, Caguas, Cayey, Cidra, Gurabo, Humacao, Juncos, Las Piedras, Naguabo, San Lorenzo and Yabucoa. A map of the region is provided at Figure 2.1 below. 5 INTECO is a non-profit corporation created with the purpose of achieving economic and social development in the CER s municipalities of Puerto Rico. Page 11

16 Figure 2.1 Map of the Central Eastern Region Municipalities Source: INTECO As shown below in Table 2.1, the CER has a total population of more than 550,000, 6 which increased by 4.0% during the ten-year period to 2010 despite an overall population decrease of 2.2% for Puerto Rico. When the CER population is combined with the 1.3 million inhabitants of the SJMA, the Project could potentially serve a population of 1.85 million Puerto Ricans, equivalent to 46% of Puerto Rico s total population. According to the Census Bureau Community Survey ( ), 55% of the CER population is aged 16 to 64 years, and represents the labor force (refer to Figure 2.2 below). It should also be noted that 43% of the CER s population consists of workers aged 16 to 64 years who travel to work alone by private vehicle. Of these workers, 30% work outside their municipality of residence. 6 U.S. Census Bureau (2010). Page 12

17 Figure 2.2 Trip Patterns Survey 56.00% 54.00% 52.00% 50.00% 48.00% 46.00% 44.00% 42.00% 40.00% 38.00% 36.00% 34.00% 32.00% 30.00% 28.00% 26.00% 24.00% 22.00% 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% Region's Work Trips Patterns REGION % Region's People 16 to 64 Years Who Are in the Labor Force % Region's Population that are Workers 16 Years and Over Who Traveled to Work by Car, Truck, or Van--Drove Alone % Region's Population that are Workers 16 Years and Over Who Traveled to Work by Car, Truck, or Van--Carpooled % Region's Population that are Workers 16 Years and Over Who Traveled to Work by Public Transportation (Excluding Taxicab) % Region's Population that are Workers 16 Years and Over Who Worked Outside County of Residence Source: First Regional Transit System Central Eastern Region by CMA Page 13

18 Table 2.1 Central Eastern Region Population Change, per U.S. Census 2000 and Municipality Population (2010) Population (2000) Change (%) Proportion of CER (2010) Aguas Buenas 28,659 29, % 5.2% Caguas 142, , % 25.9% Cayey 48,119 47, % 8.7% Cidra 43,480 42, % 7.9% Gurabo 45,369 36, % 8.2% Humacao 58,466 59, % 10.6% Juncos 40,290 36, % 7.3% Las Piedras 38,675 34, % 7.0% Naguabo 26,720 23, % 4.8% San Lorenzo 41,058 40, % 7.4% Yabucoa 37,941 39, % 6.9% Total 551, , % 100.0% Source: First Regional Transit System Central Eastern Region, by CMA The largest urban concentrations of the CER are located in the municipalities of Caguas, Cayey and Humacao. Additionally, during the ten years ended 2010, the number of housing units in the CER increased by 22.5%, with the greatest increases in Gurabo (41%), Naguabo (35.5%) and Las Piedras (31%). Over the past decade, the concentration of government agencies and other work centers in the SJMA has stimulated broad growth and for the whole Area. A corollary of these activities is increased development pressure in Caguas and San Juan, where a significant increase in development of commercial, industrial and residential projects has been observed in proximity to state highways PR-52, PR-30 and PR-1. It should also be noted that any Project activity must not impede upon any of the environmentally sensitive forests located within the CER, namely: El Yunque National Forest, Carite State Forest and Humacao Natural Reserve. Page 14

19 2.3 Current Transportation Options in the Region Despite its growing population, no public mass transit system presently services the corridor between the municipalities of Caguas and San Juan. Existing transit alternatives to private travel include privately owned and operated taxis, vans and buses, collectively known as públicos. These vehicles are regulated by the DTPW/PRHTA and generally serve retirees, disabled and low-income individuals. Públicos typically operate along state and municipal roads and can accordingly make multiple stops per route. State highways PR-52 and PR-30 are controlled access roads and do not accommodate this type of traveling pattern. Any private or public transit system that utilizes state and municipal roads would not avoid the prevailing levels of traffic congestion, thus making a rail transit alternative attractive. A rail transit alternative additionally has the potential to alleviate traffic congestion in the road network. 2.4 Passenger Demand for the Project The SJMA is one of the major activity nodes in Puerto Rico. Commuter trips from the CER to SJMA number more than 102,600 trips per day, or 60% of the total daily trips in the CER. Generally, 80% of commuters use private vehicles for their daily trips. 7 Traffic surveys conducted in previous years indicate that approximately 160,000 private vehicles use state highways PR-1, PR-30 and PR 52 to make their daily commute. These surveys also indicate that, on average, 1.6 passengers occupy each private vehicle, suggesting that approximately 256,000 individuals currently commute along the proposed Project corridor. Conservative capture rates ranging from of 2% to 8% of this commuter base would suggest that the Project would attract between 5,000 and 21,000 riders per day. This compares well to the number of weekday riders currently using Tren Urbano, of approximately 49,000. In the municipality of San Juan, various activity centers along the PR-52 and PR-30 corridors would benefit from the Project, including: Puerto Rico Medical Center; The Knowledge Corridor; University of Puerto Rico, Botanical Gardens; University of Puerto Rico, Rio Piedras Campus; Metropolitan University; Inter-American University; and Areas presently served by Tren Urbano stations. In the municipality of Caguas, parties likely to benefit from the Project include: Commuters using the PR-30 Corridor; Commuters using the PR-52 Corridor; Las Catalinas Shopping Mall; and 7 First Regional Transit System Central Eastern Region, by CMA. Page 15

20 Plaza Centro Shopping Mall. 2.5 Analysis of Service Needs Table 2.3 below summarizes and prioritizes the key service needs that must be satisfied, as well as the limitations to be overcome, in order to meet the Project s objectives. This Study seeks to address these objectives. Table 2.2 AMC and DTPW/PRHTA Service Needs Entity General service Needs Limitations Objectives DTPW and PRHTA DTPW and PRHTA Increased capital expenditures to improve mass transit quality and services Increase in revenue and subsidy reduction Lack of borrowing capacity and liquidity to finance expansion of existing systems (Tren Urbano) Debt reduction Existing low fares Develop a sustainable system AMC, DTPW and PRHTA Increase intra and intermunicipal connectivity and mobility Restricted economic capacity and liquidity to fund mass transportation projects Develop mass transportation projects through private investment AMC, DTPW and PRHTA Stimulate trade and industry growth in the CER Inability to attract new industry investments Job creation through capital spending and investments in mass transportation systems AMC, DTPW and PRHTA Improvement of environmental conditions Lack of effective mass transit for the region Emissions reductions by improving transit Source: Caguas-San Juan Commuter Rail Office 2.6 Project Scope of Work The Project includes the design, construction, operations and maintenance of a commuter rail corridor between the municipalities of Caguas and San Juan. These activities will be undertaken in two primary phases: Design-&-Build ( D&B ) and Operations & Maintenance ( O&M ), as discussed below Design-&-Build The Design-Build phase, or construction phase, of the Project includes activities such as design, construction, installation, integration, procurement, testing, and/or certifying components such as: Roadways and structures; Rollingstock, including locomotives and carriages; Page 16

21 Station stops and station stop equipment; Secured park and ride facilities; Interfaces to wayside equipment for LRV vehicles; Track-work and special track-work (ballast, embedded, direct fixation or others); Automatic train protection systems; Intelligent transportation systems ( ITS ) components and subsystems; Communication systems; SCADA system; Traction power substations and overhead contact system ( OCS ); Distribution systems; Provisions for the fare collection system; and Operations, maintenance and storage facilities ( OMSF ) Operations & Maintenance The Operations & Maintenance phase of the Project includes activities associated with the routine operation and maintenance of items such as: Tracks and track-ways; Ballasted and embedded special track-work; Station stops; Rail vehicles; Parking facilities; Crossing barriers and fences; Security and enforcement at stations; Support vehicles; Wayside equipment; OMSF and traction power substation buildings; Automatic train protection systems; ITS components and systems; Communication and security systems; OCS system; and Fixed and mobile rail borne workshop equipment and rubber-tire work vehicles. The Authority envisions that participating private sector entities will consist of teams (consortia, joint ventures, or partnerships) of local, U.S. and/or international firms who will jointly be responsible for delivering all of the requirements of the Project pursuant to a Project Agreement. The active participation of local suppliers, contractors, designers, engineers, advisors and investors will be encouraged to promote local economic activity, transfer of technical knowledge and develop local expertise. Page 17

22 3 DELIVERY OPTIONS ANALYSIS 3.1 Introduction On June 8, 2009, the Government of Puerto Rico passed legislation to promote the establishment of Public Private Partnerships (P3s) for the creation of priority projects and, among other things, to foster the development, operations and maintenance of infrastructure facilities. The benefits of P3s may include allocating risks of a given project between the public and private sector to the party who is best able to manage them, improving the services and functions of the Government, fostering job creation and promoting the socioeconomic development and competitiveness of the country. As per the legislation referred to above, the Authority s Board of Directors shall determine whether or not to proceed with the proposed Project as a P Delivery Options P3s can take many forms, each of which presents a different risk profile to the public and private sectors. It is important to compare the P3 delivery options to a traditional delivery option for a given project. Below is a list of the traditional and P3 options considered for the Project in the order of increasing risk transfer to the private sector: 1 Conventional Design / Bid / Build (Conv). In this option, the public sector retains almost all project risks. It fully designs the project and then solicits bids from private contractors. However, as the public sector designed the project it retains all design risks which can often result in change orders from the private contractor and increased project costs to be covered by the public sector. The public sector also assumes the role in financing, operating and maintaining the project and all of the related risks including cost overruns during all phases of the project. 2 Design / Build (DB). This delivery method begins to transfer risks to the private sector. The public sector will often do preliminary design (15-30% of total design work) and then the private sector will be responsible for completing the design and constructing the project using a fixed-price, date certain contract. Not only does this begin to transfer risk, but this method allows for the acceleration of project delivery as a significant portion of the design work is done while the project is under construction. The duration of these contracts matches the construction term (usually 2-4 years). 3 Design / Build / Operate (DBO). Building upon the DB model above, this option includes responsibility of the private sector to operate the project. This model begins to introduce whole-life cost analysis into the delivery model as the private sector will typically have to price the risk of operations upfront and be responsible for any cost overruns. If the private sector is responsible for operating the project, they will take that into consideration during the design phase so that the combined construction and operation costs are minimized. The duration of these contracts may be quite long, but usually no more than 15 years as tax-exempt debt limitations often prohibit longer private sector participation. The project is owned by the public sector and it retains the risk to finance it and support the capital maintenance of the project. Page 18

23 4 Design / Build / Operate / Maintain (DBOM). This model adds private sector maintenance requirements to the model above. This further increases the risk transfer as they typically have to price the cost to maintain the project, including life-cycle capital maintenance costs upfront. The duration of these contracts may be quite long, but usually no more than 15 years as tax-exempt debt limitations often prohibit longer private sector participation. The project is owned by the public sector and it retains the risk to finance it. 5 Design / Build / Finance (DBF). In this scenario, the private sector does not have operations or maintenance risk. It is responsible for getting the project built using a fixed-price, date certain contract and for financing it. In this case, projects are typically 100% debt financed and the total contract terms may vary from 2-4 years (with take-out financing done at completion) to 15 to 30 years. The project is owned by the public sector and it retains the risk to operate and maintain it. 6 Design / Build / Finance / Operate (DBFO). This model adds private sector financing to the model above. This may be necessary when sources of public financing are not available. The public entity remains responsible for project maintenance. As private sector finance is used, tax-exempt bond limitations on private operations do not apply resulting in longer contract terms. The project is owned by the public sector and it retains the risk to maintain it. 7 Design / Build / Finance / Operate / Maintain (DBFOM). In this model, a significant amount of risk is transferred to the private sector. This model fully integrates the majority of cost elements of the project and seeks to maximize the benefits of whole-life costing. Contract terms are typically years for projects utilizing Availability Payments to compensate the private party and 50+ years for projects which use project revenues (e.g. tolls) to compensate the private party. Project ownership is retained by the public sector. After analyzing the various options listed above, AMC recommended the Design / Build / Finance / Operate / Maintain (DBFOM) model as the most suitable option for the Project. The Authority has sought to improve the certainty of final construction Project costs on certain contracts by the transfer of most risks to the private sector. This has been effective in improving cost and time certainty, giving the Government the opportunity to improve public services and make progress in the Commonwealth s sustainable development. 3.3 Socioeconomic Impacts Generally speaking, the Project has several positive socioeconomic impacts for CER, SJMA and Puerto Rico. Investment in the commuter rail and improvements in the regional system transportation will bring the following benefits: Improve the quality of life for the region s residents; Provide spaces for social interaction; Reduction in the traffic congestion experienced daily by users of State Highways PR-1, PR-30 and PR-52 during the morning and afternoon peak hours; and Page 19

24 Sustain and maintain the economic development, including job creation, that has been experiencing the region, as revealed in the 2010 census. 3.4 Environmental Impact An Environmental Assessment ( EA ) was carried out by AMC to evaluate the actual conditions of land use for the Project s proposed alignment. The action was described as not having a significant environmental impact. Most of the studies revealed that the contemplated conceptual design route runs through areas previously impacted by the construction of existing highways. The implementation of the mitigation measures discussed in the EA will address any minor impact along the Project alignment. The natural systems and environmental context that exists along the studied corridor will not be significantly affected. 3.5 Risk Allocation Risk Allocation Analysis is used to describe a sequence of analysis and management activities focused on creating a project-specific response to the inherent risks of developing a new capital facility such as the Caguas-San Juan Commuter Rail Project. The objectives of risk allocation may vary depending on unique project goals, but four fundamental tenets of sound risk allocation should always be observed, namely: To allocate risks to the party that is most capable of managing them; To align risk mitigation with project goals; To share risks when deemed appropriate to accomplish project goals; and To allocate risks when addressing customer-oriented performance goals. The Authority believes the DBFOM model can properly balance the risk allocation for the Project and this model has been used successfully in the U.S. and abroad for transportation projects, including rail Risk Sharing The following risks were analyzed and allocated by AMC: 1 Environmental Assessments: Current valid document prepared by DTPW and PRHTA for the construction of a bus rapid transit (BRT) system; very little if any ability to transfer environmental approval risk (including any future amendments) to the private sector. 2 ROW acquisition: Most of the required ROW is owned by DTPW or PRHTA. Additional acquisitions will be necessary. The private sector may be responsible for acquiring the parcels which would be subject to future negotiations or possibly the use of eminent domain by the Commonwealth. 3 Utility relocation: The private sector will be responsible for pricing the cost of most utility relocation and performing the work including negotiating with various utilities. Page 20

25 4 Geotechnical: Typically, this risk is shared with the private sector, taking risk with certain parameters. 5 Environmental: Compliance during construction and operations and maintenance will be the private sector s responsibility, with the exception of unforeseen conditions that are found during construction, the risk of which is typically shared. 6 Permitting: EA includes the required endorsement, to be renewed by the private sector. The private sector will also be responsible for securing any local permits. 7 Community Outreach: This is often shared by the public sector and the private sector. 8 Force Majeure: Events such as acts of war or significant weather events are not insurable and are risks the private sector will likely not be able to take. 9 Systems Procurement, Integration, and Testing: This is typically a private sector responsibility through various specialized sub-contractors, such as the rollingstock provider. 10 Fixed facilities Integration: This is typically a private sector responsibility through various specialized sub-contractors, such as the signals and systems provider. 11 Passenger Volume and Revenue: AMC and the Commonwealth will be responsible for promoting the usage and overseeing revenue collection. While the private sector may be responsible for physically collecting fares, they are not intended to take risk related to fare revenue (fare and ridership risk). The revenue is intended to be owned by the public sector including the risks and benefits thereof. The private sector will be responsible for commuters safety and security. 12 Systems Compliance and Performance: This is typically a private sector s responsibility through various specialized sub-contractors, such as operators. 13 Design and Build: Design: The private sector will be responsible for completing the design of the Project and will have the option to utilize some of the design work already done by AMC as part of the EA process. Build: The private sector will be responsible for constructing the Project on a fixed-price, date certain basis. 14 Operations and Maintenance: AMC and the Commonwealth will be responsible for promoting its use. The private sector will be responsible for: - Construction, operations and maintenance cost overruns; - Life-cycle costs; Page 21